AIG lobbying to relax oversight rules: report

(Reuters) - Insurance giant American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) is spending money to lobby states to soften new controls on the mortgage industry, the Wall Street Journal said.

When the U.S. government took control of failing mortgage titans Fannie Mae and Freddie Mac, it prohibited them from lobbying. But it hasn't banned the practice at AIG, a huge insurer that is still 20 percent-owned by public shareholders, the Journal said.

State regulators said AIG is working to ease some provisions in a new federal law, passed in July as part of a sweeping housing-industry rescue package, which establishes strict oversight of mortgage originators, the paper said.

The law requires originators to be licensed by states and to supply comprehensive information so that state regulators can track their activities, the Journal reported.

The new rules aim at holding originators accountable if they engage in improper or fraudulent lending of the kind that ultimately contributed to AIG's downfall, the paper said.

Calls to AIG seeking comment were not immediately returned.

The company, once the world's largest insurer, was bailed out by the U.S. central bank with an $85 billion cash lifeline last month after being crippled by losses on bad mortgage bets. The Federal Reserve has since expanded its assistance in a manner that could bring the total aid up to around $120 billion.

(Reporting by Shradhha Sharma in Bangalore; Editing by Kim Coghill)